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For Profit vs. Non Profit Microfinance; How are the poor affected?
Brian R. WeinbergCollege of Arts and Sciences Spanish Department, College of Business Administration FIREL Department, and Honors College Mentor: Dr. Gloria Cox - Dean of the Honors CollegeMentor: Dr. Michael McPherson - College of Arts and Sciences Economics Department
Understanding Poverty
“2.8 billion of the world’s 6 billion people live on less than $2 per day.
1.2 billion live on less than $1 per day (Anon. 2000/2001,3).”
The Global Village
What is Microfinance?
“Microfinance is banking to the poor (Dr. Muhammad Yunus).”
“Microfinance is the supply of loans, savings, and other financial services to the poor (Kiva).”
97% repayment rate2006 Nobel Peace Prize recipient Dr. Muhammad Yunus
Two Approaches of Microfinance For Profit Approach
Higher interest rates to meet costs (up to 50%) Stand alone entity (can raise capital easier to
reach more people) No research that says people cannot pay these
rates (mission drift) Non Profit Approach
Lower interest rates (20%) Offer more services than credit (education,
health) Tendency to be dependent on donors
My theory and hypothesis
Much research is done on determining which method is better. Both approaches are effective within their own scope and setting.
What are the advantages and disadvantages between the two approaches?
How are the poor affected with each approach?
Thesis Methodology
Create 2 case studies of each microfinance approach using institutions within Mexico (Compartamos & AlSol).
Isolate as many variables as possible (age, size, average loan, number of borrowers, country).
Compare and Contrast these case studies in order to draw conclusions.
How will I collect my data?
Industry leader interviews Institution website Existing research Annual reports Personal visit to Mexico
Plans for the future
Meet with my mentors to discuss drafts. Scholars Day Presentation (April 3,
2008). Complete thesis by April 15, 2008.
Acknowledgements
Dr. Susan Eve, Associate Dean of Honors College
Dr. Gloria Cox, Mentor/Dean of Honors College
Dr. McPherson College of Arts and Sciences Economics Department
HNRS Thesis Proposal 3500 class!
References
“Attacking Poverty: Opportunity, Empowerment, & Security.” World Bank’s World Development Report (2000/2001): 1-12. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/0,,contentMDK:20194762~pagePK:148956~piPK:216618~theSitePK:336992,00.html (accessed October 12, 2007).
Flynn, Patrice. “Microfinance: The Newest Financial Technology of the Washington Consensus.” Challenge 50:2 (Spring 2007): 110-21. http://www.econlit/microfinance_washingtonconsensus.com (accessed September 18, 2007).
Hermes, Neils and Robert Lensink.“The Empirics of Micro-finance: What do we know?” The Economic Journal 117:517 (Spring 2007): F1-F9. http://dq4wu5nl3d.search.serialssolutions.com/?genre=article&isbn=&issn=00130133&title=Economic+Journal&volume=117&issue=517&date=20070201&atitle=The+Empirics+of+Microfinance%3a+What+Do+We+Know%3f&aulast=Hermes%2c+Niels&spage=F1&sid=EBSCO:EconLit&pid=<authors>Hermes%2c+Niels</authors><ui>0913382</ui><date>20070201</date><db>EconLit</db (accessed September 18, 2007).
Kiva Organization Web site. http://www.kiva.org/.
Murdoch, Jonathan. “The Microfinance Promise.” Journal of Economic Literature
37 ( December 1999): 1569-1614.
Murdoch, Jonathan. “The Microfinance Schism.” World Development
28 (2000): 617-629.
The Chiapas Project Web site. http://www.chiapas-project.org
Yunus, Muhammad. Banker to the Poor. New York, NY: PublicAffairs, 2003.